In my previous blog I shared about what a cash out refinance is/how it works and why you may want to consider one. In this post, I wanted to share more about our personal experience with why we decided to do a cash out and what we plan to do with the loan.
Since we moved into our house (summer 2020), we’ve been wanting to update our kitchen and bathroom. There we plenty of other things we wanted to update, but they were more minor like paint, flooring, etc. We were able to do most of those projects when we first moved in – we repainted the entire house (which let me tell you, spending $10K alone on paint is really not fun), refinished our wood floors, ripped up the carpet in our bedroom, etc. So all of those things really did make a difference in the aesthetic of the house but we still wanted to focus on our kitchen and bathroom at some point. This is where the cash out refinance comes into play. We figured this would be the best way to tackle some of those bigger renovations.
Now at first, we thought we would take out a larger amount (enough to renovate the kitchen and our bathroom). But the more we thought about it, we decided that it would be better to take out less and just focus on the kitchen. We are still debating if we want to move from Raleigh or not (more on that below), and so we didn’t want to take out so much with the cash out if we were going to end up moving in 6 months, a year, or even two years. Yes, we could still easily make a profit on our home, but it wasn’t worth taking out over 100K when the home is going to sell regardless. So we basically ended up deciding that we would take out enough to update the kitchen and put down new grass in the backyard (no, not the fake grass that was $45K lol), and that would be a good compromise.
That said, you may be wondering – if you are still considering moving, why would you do the cash out refinance and renovate the kitchen?! A few reasons:
1. Interest rates are just continuing to go up, so if we do end up staying, we wanted to take advantage of the cash out refinance while rates are still low. This way, we can have a kitchen that we really do enjoy.
2. When we spoke with our realtor about listing our house, he said really the only thing he would update would be the kitchen. Now we are doing a little more updates than he recommended now that we did the refinance, but if we do decide to sell, the kitchen will be updated and ready to go. This will help make our home even more desirable.
3. We were much more conservative with the cash we decided to take out. Instead of taking out enough to renovate our kitchen and bathroom, we are just taking out enough for the kitchen. This way, even with the cash out refinance, our home loan is still under $200K of what we would list to sell it for. So we still have plenty of equity even if we decide to move.
Also one other thing I will share is how our actual appraisal went. So I explained in my last post, that what your house appraises for is one of the biggest factors that determines how much you can be eligible for with your cash out refinance. When the appraiser came to our house, he flat out told us that out home would not appraise for anywhere near what we could actually sell it for if we put it on the market. With appraisals, they have to look at homes that have sold (within your zip code) in the past, not necessarily what you could sell it for given the current market. Given the limited inventory in Raleigh (like many other cities), the most recent house that sold in our zip code was June 2020. So needless to say the market has even changed a lot (gone up) since then. That being said, what he could appraise our house for was much less than the current market value. Fortunately, it still appraised high enough that we could take out the amount we wanted to update the kitchen and the backyard, so it ended up working out totally fine. But just something to consider if your house has to be appraised. Just because you may be able to sell it for “X” given the current market, doesn’t necessarily mean it will appraise for that amount.
So I hope that this post and the previous one were helpful! In terms of next steps for us, we have passed along our budget to our GC who will be doing the kitchen and we’re getting started on that process. So stay tuned for updates regarding the kitchen!